Earlier this month a legal action involving 100 families seeking compensation for their children collapsed within weeks of the court hearing after a six-year fight. The families in question are suing over a range of claims for birth defects such as spina bifida, heart damage, cleft palates, deformed hands and feet – some claims are in the region of £6m – which they argue are the result of the children's mothers having taken an anti-epilepsy drug when pregnant.

The Legal Services Commission (LSC), which runs the legal aid scheme in England and Wales, says of its decision to withdraw funding that it "can only spend taxpayers' money where we believe there is a reasonable prospect of success". Taxpayers can make up their own minds as to whether spending £3.25m over the past six years supporting the litigation only to pull the plug within weeks of the case going to court represents good value for money.

I spoke to Emma Friedman, mother of 12-year-old Andy, this week. She took Epilim, manufactured by Sanofi-Aventis, when pregnant to prevent epileptic fits. "Andy is 12 years old now with a mental age of a three year old," she tells me. Her son is at secondary school in a special autistic unit and will need life-long care.

What does Emma make of the LSC's decision to pull the plug? "This sounds cold. But after paying £3.25m so far it doesn't even make good business sense to quit before the taxpayer gets the opportunity for a return on their investment. The taxpayer will pay for my son until the day he dies." She worries this is her son's last chance for justice because of the limitation bar on bringing cases. So where do the families go now? They are looking at judicially reviewing the LSC's decision. But as Emma puts it: "I feel intimidated by the prospect of challenging the LSC, government and the fourth largest drug company in the world."

Sir Menzies Campbell MP, the former Liberal Democrat leader, recently accused the LSC of playing "judge and jury". It's a good point. We are seeing brutal cuts to legal aid – £325m out of £2.1bn. One reason why the LSC was created separate from government was to allow it to make funding decisions without the accusation of being treasury-led or politically-driven. Now the LSC is about to be flung on to the quango bonfire, and its role subsumed into the Ministry of Justice.

Suing a drug company in the UK courts for a case such as Epilim appears to be nigh on impossible. It joins a truly dismal roll call of failed group actions: the 2002 oral contraception pill litigation (fell apart following 44 days of legal argument), the MMR litigation (collapsed in 2003 having cost £15m), and the notorious benzodiazepine tranquilliser cases, which swallowed up £30m of taxpayers' money without even seeing the inside of a courtroom.

It is this "bitter experience" – the LSC's words – that led to the funding regime we now have: there is only £3m available a year for major multiparty actions and any litigation is subject to an annual affordability review.

Increasingly, legal aid isn't there for such complex cases. The expectation from this month's green paper on legal aid is that the private sector steps in and lawyers run these cases on "no win, no fee" backed by after-the-event insurance. The reality is that insurers don't back families fighting multinational drug companies.

Consider the plight of the Vioxx litigants. In November 2007 the manufacturer Merck paid more than $4.85bn to Americans who claim to have suffered heart attacks and strokes as a result of the anti-arthritis drug. By contrast, the UK legal action never really got off the ground. The claimants couldn't get legal aid nor could they find an insurer to back their case. They were left taking their cases to New Jersey where the judge ruled against them on the grounds that their home country had "a perfectly appropriate judicial system". The problem is they could not get their case into court at all.

David Body, the partner at Irwin Mitchell representing the Epilim families, is sceptical about the prospects of funding the case privately. "It's late in the day and there is likely to be an enormous insurance premium to deal with the potential cost for a trial against a multinational drugs company." And as he puts it: "That is why legal aid is there. It is designed to enable people of modest means to get through the courtroom door." Quite; the problem is it's not working.

Jon Robins is a freelance journalist and director of the research company Jures